'Speculative' banks rob loyal customers, city watchman says

Nikhil Rati, head of the FCA, said it was «standard practice» for existing clients to receive lower rates than new depositors. Credit: Holly Adams/Bloomberg

Banks are ripping off loyal customers by refusing to increase savings offers even as interest rates rise, city watchdog said.

Savers have been penalized with much lower returns according to the Financial Authority Conduct Authority (FCA) has been described as a «cultural» issue that requires major reform.

Nikhil Rati, FCA chief executive, told MPs it has become «standard practice» for banks to offer more attractive rates to new savers, «leaving existing savers less competitive rates.»

In a letter to the Treasury Select Committee (TSC), Mr Rati warned that the problem has worsened as the Bank of England raised interest rates from 0.1% in December 2021 to 4.25% today.

Some banks only boosted, he said, their savings rate is «substantially behind the times» compared to mortgage products.

Mr Rati said: «We expect the harm from this practice (and the loyalty penalty, with faced by longtime customers) will increase as the base rate increases.”

Harriet Baldwin, chairman of the Treasury Committee, the Cross-Party Group of MPs, which investigated bank savings rates, said: «The regulator has officially confirmed that the UK's largest banks are profiting from higher interest rates and that loyal depositors are increasingly suffering.» p>

Banks are due to release first-quarter results in the coming weeks, and Ms Baldwin said her committee «will be watching to see if firms continue to squeeze profits out of their loyal savings customers.»

The average easy-to-reach savings rate is less than 2%, according to Moneyfacts. That's less than half the bank rate, which is 4.25 percent.

The average rate on a two-year fixed-rate mortgage on April 19 was 5.26 percent.

Mr Rati said, that the FCA has challenged some of the worst offenders who have failed to fairly increase income, or have done so with a long delay compared to raising mortgage rates.

While banks are unable to pass on benefits due to higher savings rates, mortgage borrowers are becoming more constrained.

Monthly payments for 67,000 mortgage holders will increase by 50% or more by June 2024, FCA found

2,403 mortgage costs

The total number of mortgage holders whose housing payments exceed 30 percent of their total income (the benchmark for what the FCA calls «financial stress») is likely to increase to 356,000 over that same period.

Mr Rati warned that this represented an average increase of £340 for fixed-term deals.

From July, the FCA is introducing new consumer protection rules aimed at to ensure that the big banks provide value for money to their customers.

Mr Rati said the so-called consumer tax “will focus on fair pricing for all groups of savers… and will require companies to make a significant culture change” .